Sebi working with FinMin on new framework on algorithm trading

The Securities and Exchange Board of India (Sebi), in consultation with the finance ministry, is expected to reissue fresh guidelines on high-frequency trading (HFT), popularly known as algorithm trading, after taking feedback from market participants.

According to sources, the earlier proposal to tighten the algo trading rules, which had been put out by Sebi in August 2016, has been dropped by the ministry. The market’s contention was that the rules were framed without taking all aspects into consideration, were not in line with global practices, did not have sufficient checks and balances, and would have had an adverse impact on liquidity.

To review the proposed norms, Sebi constituted in August last year a committee on fair market conduct to suggest measures to improve surveillance of the market and strengthen the rules for algo trades.

 

“We have received several proposals and will soon put out final guidelines in this regard,” said a person privy to the development.

“Sebi’s new proposal would bring standardisation of the co-location (colo) facility. Most of the measures proposed earlier were regressive in nature. The new framework would be progressive in terms of equitable access without impacting liquidity,” said a source.

In 2015, Sebi began investigations after it received multiple complaints that some brokers had allegedly got preferential access to the National Stock Exchange’s (NSE’s) colo facility. According to the source, the consultation paper is being prepared keeping in mind the best global practices and considering cost benefit analysis, which was not effectively done in the previous proposal.

Sebi’s new framework would ensure that liquidity is not impacted. For that, the regulator may put a cap on “order to trade ratio” to give level playing field. This could be done by formalising market maker scheme.

“To improve liquidity, the regulator should formalise the market-making scheme. There should be differentiated treatment and regulation in terms of market participation. The regulator should economically incentivise market makers rather than disincentivising all market participants uniformly,” said Harjeet Singh, consultant, department of economic affairs, ministry of finance.

Under the revised proposal, the regulator is said to be focusing on a real-time surveillance system so that it could get minute-by-minute surveillance of algo trades and, thereby, detect and prevent malfunctioning.

This could be done by improving the existing infrastructure and ramping up the systems by having an advance template of superior technology.

Currently, there is no structured data available at a prescribed time interval to provide real-time feed for surveillance.

Besides, Sebi also wants to have standarisation of colo facility, so that all participants would have fair and equitable access. “Publishing real-time colo-based latencies would help bring in transparency as well as provide benchmarking against global exchanges,” said Singh.

The regulator is not in favour of allowing retail participation in HFT at present. “It is not advisable as it would be highly risky for individual investors to use automated trading systems. The regulator wants to have guidelines in place first and it could perhaps consider domestic individual investors at a later stage,” said one of the sources cited above. Sebi also plans to address and mitigate the chance of flash crash and fat-finger trades.

Algo trading is a software programme designed to execute automated trades on fulfilment of certain criteria. These are typically trading strategies that make use of complex mathematical models. The most common is arbitrage, which tries to profit from differential pricing of the same security at the same time on different exchanges. According to the Sebi data, a little over 80 per cent of the orders placed are generated by algorithms. Such orders contribute to about 40 per cent of the trades on exchanges (not all orders result in trades).

The review of the HFT regulation was triggered by the NSE co-location controversy, where some brokers and officials allegedly made illegal gains through preferential access to the server. After the controversy, Sebi had published a discussion paper and had proposed seven ways to level the playing field between HFT traders and others. These included revising the order sequence, introducing a minimum resting time between HFT orders, and uniform access to market data.

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Sebi working with FinMin on new framework on algorithm trading

Sebi launches search operation in WhatsApp earnings leak case

The capital market regulator Securities and Exchange Board of India (Sebi) has launched a massive search operation in connection with WhatsApp earnings leak case.

Confirming the development, a regulatory official told Business Standard that about 34 people have been identified and are being searched. These people are company officials, brokers and entities who allegedly gained out of the earnings information which was made public in advance.
Nearly 100 Sebi officials and policemen had been deployed for the search operation, which is being done in coordination with the Mumbai police. The search operation will continue for two days, said official cited above.

Last month, Sebi had initiated a probe against dozen odd companies including—Dr Reddy’s, Cipla, Axis Bank, HDFC Bank, Tata Steel, Wipro and Bajaj Finance. The other five were Mahindra Holidays and Resorts, Crompton Greaves Consumer Electricals, IT services providers Mindtree and Mastek, and India Glycols, a petrochemicals company.

According to the sources, around five companies, whose price-sensitive information had leaked on social media, are under investigation. However, BS could not ascertain the five companies under the current Sebi search operation lens.

These five companies have been identified after analysing and examining their trade data of the last 12 months. Further, it had matched the leaked earnings with the actual results of the September quarters to detect a possible breach of Prohibition of Insider Trading (PIT) norms.

Sebi launches search operation in WhatsApp earnings leak case

Sebi should prosecute Infy board over Panaya, Bansal issue: Whistleblower

A whistle-blower at Infosys has asked market regulator, the Securities and Exchange Board of India (Sebi), to reject the Bengaluru-headquartered information technology (IT) major’s offer to settle the dispute over former chief financial officer (CFO) Rajiv Bansal’s severance pay. Instead, the whistle-blower has sought an independent forensic investigation of the matter.

The anonymous whistle-blower, whose email to Sebi was reviewed by Business Standard, also blamed the Infosys board, currently led by co-founder Nandan Nilekani, for dismissing the allegations. “It is a mockery of justice,” the whistle-blower, who claims to be an Infosys employee, has written.
“The impunity with which the board — both past and present — dismissed the allegations when they knew they were wrong is unprecedented and just for this reason Sebi should dismiss this settlement overture and prosecute the management and board to set an example,” the letter claims.

The whistle-blower drew parallels to allegations of fraud at the National Stock Exchange, which was investigated by the company-appointed panel and got a clean chit.

Sebi should prosecute Infy board over Panaya, Bansal issue: Whistleblower “The current (NSE) management filed for [a] consent [plea], but Sebi is not accepting that and asking for special investigation. Why Infosys case should be different from the NSE case? Why not Sebi order a fully independent investigation including a forensic investigation and make people accountable?” said the letter.

An Infosys spokesperson said the company has not seen the letter.

In February, the petition by an anonymous whistle-blower to Sebi, alleging irregularities in the acquisition of Israeli technology firm Panaya by Infosys and the subsequent severance pay to Bansal triggered at least two independent investigations. Both gave a clean chit to former chief executive officer Vishal Sikka and the company.

However, Infosys founder N R Narayana Murthy, who had made public his outrage against the failure of Infosys in disclosing the severance pay to shareholders and regulators, wanted the report to be made public.

Infosys declined, saying there were confidential details in the report.

The public pressure from Murthy made Sikka quit the company in August. Following this, the board, led by then chairman R Seshasayee, engaged in a public spat with Murthy. Seshasayee and two other board members also ended up quitting the company.

As investors fled Infosys after a failed three-year experiment with its first non-founder CEO and the subsequent uncertainty, several board members, investors, and former employees reached out to a reluctant Nilekani to return to the company.

One of the commitments made by Nilekani, who returned as non executive chairman, was to look at the probe reports dispassionately and offer his views.

In October, he gave a clean chit to Sikka and declined to make the probe report public, citing confidentiality reasons. On December 2, Infosys named Salil S Parekh, a former Capgemini executive, as the next CEO.

On Wednesday, Infosys approached Sebi with a consent plea to settle allegations of disclosure lapses on Bansal’s severance pay, which analysts and former Infosys employees said was an admission of guilt.

The latest salvo at Infosys comes at a time when two former board members, T V Mohandas Pai and V Balakrishnan, have asked Infosys to apologise to founder Murthy and also sought the exit of board members who took the previous decisions. Balakrishnan told PTI that Ravi Venkatesan and Roopa Kudva should resign.

Sebi should prosecute Infy board over Panaya, Bansal issue: Whistleblower Some board members tried to respond to the building pressure.

“I hope you recall that procedural lapses were admitted when Seshasayee apologised at (the) AGM. Settlement is to pay fine for unintended procedural lapses,” tweeted Kiran Mazumdar-Shaw, an Infosys board member, and chairman and managing director of Biocon.

She was responding to a query on the microblogging platform whether she would resign from the Infosys board. The whistle-blower’s letter to Sebi said future disclosures on any wrongdoing could potentially not be exposed if Infosys is let off the hook now. “This is the first time an internal whistle-blower took pain to unravel a fictitious payment to an ex-CFO and a suspicious acquisition with personal conflicts attributed to senior management. If this case is settled through the backdoor then no whistle-blower in the future will take the pain to expose such things,” the letter said.

Sebi should prosecute Infy board over Panaya, Bansal issue: Whistleblower

Sebi to investigate possible leak of company earnings on WhatsApp chats

The Securities and Exchange Board of India (Sebi) will investigate possible leaks of company earnings in social media chatrooms, its chief Ajay Tyagi said on Friday.

ALSO READ: Predictive messages about Indian cos results circulate in WhatsApp groups

 

A Reuters investigation documented at least 12 cases of prescient messages about major Indian companies being posted in private WhatsApp groups.

“We will certainly investigate the issue. It is a work in progress,” Tyagi, chairman of Sebi, India’s market regulator, told Reuters, when asked what action the regulator was considering.

Sebi to investigate possible leak of company earnings on WhatsApp chats

MARKETS LIVE: Sensex extends losses for 4th session, Nifty dips below 9,900

The markets extended losses for the fourth straight session on Thursday taking lead from Asian markets, which traded in negative, following lower closing on the Wall Street.

Back home, investors will keep an eye on any development on the Sebi’s decision to restrict trading in 331 shell firms. The market regulator on Wednesday ordered stock exchanges to verify their credentials and fundamentals. In a letter to the exchanges, Sebi hinted if a company’s business model appeared satisfactory, the trading ban could be revoked.

Meanwhile, BHEL, GAIL, Petronet LNG, Bharat Forge, IOB, Adani Power, Union Bank Coffee Day Enterprises, GSPL and Gujarat Gas are among 340 companies scheduled to report their June quarter earnings later today.

MARKETS LIVE: Sensex extends losses for 4th session, Nifty dips below 9,900

Satyam case: Sebi to soon pass order on Price Waterhouse

Markets regulator Sebi will soon pass an order on global auditing firm Price Waterhouse for its alleged negligence and lapses in a nearly decade-old corporate fraud case involving Satyam Computer Services, regulatory officials said.

Sebi is investigating the role of the auditing firm which worked for Satyam between 2000 and 2008 and has been under the scanner for allegedly concealing the scam that came to light in January 2009 when the company’s founder B Ramalinga Raju himself admitted to fudging the books.

“The Securities and Exchange Board of India (Sebi) would soon pass an order against Price Waterhouse in Satyam case,” a regulatory official said on condition of anonymity as the final order is still being framed.

 

Sebi, which has been probing Price Waterhouse for a long time and was asked by the Supreme Court in January to expedite the matter, held a series of hearings with the auditing major and its officials during May-June this year.

The officials said the government has also received certain complaints regarding Price Waterhouse and it has asked Sebi to look into the matter.

When asked about submissions made by the group, a Price Waterhouse spokesperson said: “The matter is at procedural stage of the proceedings and thus no substantive submissions have been made, which shall be done as and when the occasion arises.”

The Supreme Court, in January, had directed Sebi to complete in six months its enquiry proceedings against Price Waterhouse.

Soon after the scam came to light, Sebi had issued show-cause notices to Price Waterhouse and its associates in February 2009. Further notices were issued to Price Waterhouse in 2012 under Fraudulent and Unfair Trade Practises (FUTP) regulations.

Pursuant to Sebi’s show cause notice, Price Waterhouse had moved the Bombay High Court, saying that Sebi being a stock market regulator has no jurisdiction to issue show-cause notice to auditors’ firm. Only a body such as Institute of Chartered Accountants of India can do this, it contended.

On the other hand, Sebi had said that auditors have “direct, fiduciary” relationship with shareholders and they had incurred losses due to decisions based on Satyam’s balance sheet. Later, the Bombay High Court ruled that Sebi had the powers to issue show cause notice to Price Waterhouse.

Following issuance of show cause notices way back in 2009, Price Waterhouse had submitted applications to the regulator seeking cross-examination of certain persons associated with the case. In December 2010, Sebi allowed cross-examination of some of the persons, but refused the same for a few others.

Later, Price Waterhouse had approached the Securities Appellate Tribunal (SAT) on the issue of cross-examination, following which the Tribunal last month asked the regulator to allow cross-examination of some more persons.

After nearly 7 years of investigation, Sebi in 2015 asked 10 entities linked to the main accused B Ramalinga Raju – including his mother, brother and son – to disgorge over Rs 1,800 crore worth of illegal gains made by them.

Besides, they were asked to pay close to Rs 1,500 crore as interest on the disgorgement amount, as the penalty was levied with effect from January 7, 2009 — the day Raju admitted to a massive long-running fraud at the company.

Prior to that, Sebi in July 2014 had barred Raju and other individuals from the securities market for 14 years.

After hearing appeal against these orders, the SAT in May this year directed Sebi to pass a fresh order with respect to the quantum of punishment given to Raju and four others.

While agreeing with Sebi’s finding that the individuals violated regulations, the tribunal also said the decision to uniformly restrain all the appellants from accessing the securities market for 14 years “without assigning any reasons is unjustified”.

Satyam case: Sebi to soon pass order on Price Waterhouse

Sebi joins fight against bad loans

The Securities and Exchange Board of India (Sebi) on Wednesday joined the fight against bad loans by providing several relaxations to the rules of share acquisitions in the case of distressed companies.

The market regulator said an investor gaining control of a stressed company in the listed space would not have to make an open offer. Also, Sebi’s pricing formula for acquisition of shares would not be applicable in such cases.

Currently, these exemptions are only given to banks, but the restructuring process hits a roadblock if the bank further decides to divest to a new investor.

 

“The Sebi board has taken decisions to facilitate the resolution of distressed assets, thereby contributing to the efforts made by the RBI (Reserve Bank of India) and the Insolvency and Bankruptcy Board of India,” said Ajay Tyagi, chairman, Sebi.

At the board meeting, Sebi took other key decisions such as banning participatory notes (p-notes) from taking naked positions in the derivatives segment, and easing the entry process for foreign portfolio investors (FPIs). It also removed the one-year lock-in requirement for private equity investors registered as alternative investment funds (AIFs) in initial public offerings (IPOs).

Sebi said acquisitions of stressed companies approved by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) would be given exemptions from an open offer. Under the current rules, any acquirer buying 25 per cent in a listed company has to make an open offer to acquire another 26 per cent.

Sebi’s relaxation would keep the acquisition costs in check and also expedite the bad loan resolution process. The move comes at a time when the government and the Reserve Bank of India (RBI) are struggling to restructure about Rs 7 lakh crore worth of stressed assets.

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Sebi said there would be certain safeguards for minority shareholders such as three-year lock-in for new investors and need for a special resolution to approve the new promoter. “I hope Sebi’s move will facilitate the restructuring of stressed assets,” Tyagi said.

Experts say Sebi’s decisions would ease the challenges faced by banks in restructuring.

“It is an important step from Sebi to facilitate a smooth restructuring process. However, it is not clear what pricing guidelines will apply if fresh shares were issued as preferential allotment or under a bid process where different bidders under resolution process provide different price offers,” said Darshan Upadhyay, partner, Economic Law Practice.

“The Sebi law directing open offer to the acquirers of such stressed listed companies could have been a big hurdle as it increases the cost of the deals. It is expected that soon many big stressed listed companies would undergo management changes in accordance with these schemes,” said Manoj Kumar, partner and head, Corporate Professionals.

Sebi also provided a boost to FPIs by proposing to ease the definition of broad-based funds and also the ‘fit and proper’ criteria. The market regulator also reduced the paperwork for FPIs coming in from countries that have diplomatic tie-ups with India.

On the other hand, Sebi further tightened the p-note framework by imposing a regulatory fee of $1,000 every three years on each ODI subscriber, starting April 1, 2017. It also said p-notes would be allowed to deal in derivatives strictly for hedging purpose.

“Sebi’s move to levy regulatory fee will increase the cost of investing in Indian market but may not be seen as a significant barrier. However, limiting p-notes on derivatives to hedging purposes only will not only negatively impact liquidity to some extent but also create artificial regulatory arbitrage,” said Suresh Swamy, partner – financial services (tax), PwC.

Tyagi said Sebi’s didn’t intend to completely ban p-notes as they were important for investors wanting to “test the India market” first before registering.

Concerned with high turnover in the derivatives segment vis-à-vis the cash segment, Sebi said it would soon issue a consultation paper on the equity derivatives market. Tyagi said there was a need to review the product suitability for retail investors.

Sebi joins fight against bad loans